Doddering Keating still wants to lower worker’s pay

By Leith van Onselen

Even after the Productivity Commission’s (PC) scathing final report on the efficiency and competitiveness of Australia’s $2.8 billion superannuation system, former Prime Minister and architect of Australia’s compulsory superannuation system, Paul Keating, has the gall to criticise the Coalition for delaying an increase in the superannuation guarantee, as well as attack the PC for recommending that an independent inquiry into the nation’s retirement income system before the super guarantee’s next scheduled increase in 2021. From The AFR:

“In the course of Clive Palmer telling Australians he will make Australia great again – he might explain to the nation’s 12.5 million employees why, in the Senate, his party voted with Joe Hockey to deny every Australian employee an extra 2.5 per cent of superannuation till 2025,” Mr Keating said…

Mr Keating also turned his ire on the commission’s deputy chairman Karen Chester for recommending another retirement income system inquiry before any possible rise in the SG – next due in 2021… “How pathetic is this as a policy recommendation?” Mr Keating said…

“Superannuation works in reducing the national call on the age pension”… Mr Keating… has urged for the rate to be gradually lifted to 15 per cent.

Doesn’t Paul Keating realise that compulsory superannuation is paid for by workers (not employers) via lower take-home pay (less disposable income)?

He should, because 11 years ago he gave a speech whereby he acknowledged this precise fact:

“The cost of superannuation was never borne by employers. It was absorbed into the overall wage cost. Indeed, in each year of the SGC growth between 1992 and 2002, the profit share in the economy rose…

“In other words, had employers not paid nine percentage points of wages as superannuation contributions to employee superannuation accounts, they would have paid it in cash as wages…

“When you hear conservatives these days speak of superannuation as a tax on employers they are either ill-informed or they are lying.”

Let’s also remember that the Henry Tax Review explicitly noted that compulsory superannuation is paid for by workers:

Although employers are required to make superannuation guarantee contributions, employees bear the cost of these contributions through lower wage growth. This means the increase in the employee’s retirement income is achieved by reducing their standard of living before retirement.

Accordingly, the Henry Tax Review explicitly recommended the superannuation guarantee be retained at its current level, not raised to 12%, so that it didn’t adversely impact lower income earners:

The retirement income report recommended that the superannuation guarantee rate remain at 9 per cent. In coming to this recommendation the Review took into the account the effect that the superannuation guarantee has on the pre-retirement income of low-income earners.

And for anyone still with doubts about who pays for super, consider this 2010 speech by Bill Shorten – a former union heavyweight – when he was Minister for Financial Services & Superannuation in the Gillard Labor Government:

Because it’s wages, not profits, that will fund super increases in the next few years. Wages are the seedbed of the whole operation. An increase in super is not, absolutely not, a tax on business. Essentially, both employers and employees would consider the Superannuation Guarantee increases to be a different way of receiving a wage increase.

Paul Keating’s oft-repeated claim that raising compulsory superannuation would relieve pressure on the federal budget is also patently false. The budgetary costs of compulsory superannuation actually exceed the savings to the federal budget – a point explicitly acknowledged by the Henry Tax Review:

“An increase in the superannuation guarantee would … have a net cost to government revenue even over the long term (that is, the loss of income tax revenue would not be replaced fully by an increase in superannuation tax collections or a reduction in Age Pension costs).”

The Grattan Institute’s latest report similarly concluded that “both the short and long term, superannuation tax breaks cost the budget more than they save in pension payments”:

Paul Keating needs to face up to the facts. Tax concessions on superannuation already cost the Budget an inordinate sum, and are growing rapidly. Raising the superannuation guarantee to 12% (let alone 15%) would mean they become an even bigger ($2 billion a year) Budget drain over time.

Meanwhile, it would do little to boost superannuation savings for lower income workers – those most likely to become reliant on the Aged Pension – given the lion’s share of superannuation concessions would flow to higher income earners. Thus, raising the superannuation guarantee would merely worsen the inequities and inefficiencies already rife in the system.

About the only winners from raising the superannuation guarantee would be the industry, which would get to ‘clip the ticket’ on more funds under management and earn fatter profits.

Clearly, Paul Keating cares far more for the industry rent-seekers than ordinary Australian workers and taxpayers, who would have to foot the bill for his 15% compulsory super brain fart.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith is an economist and has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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